After the collapse of Lehman Brothers in September last year, the speed of the economic slowdown caught everyone by surprise and according to , manager of the JPMorgan (JPM) Natural Resources fund, no one was prepared for the rapid deterioration in the funding of their businesses that followed. The commodity sector was not immune to this, and the fourth quarter of 2008 saw the resources industry bogged down by concerns over a drop in demand for commodities as the developed world slipped into a full-blown recession.
JPM Natural Resources felt the punch of the credit crunch as commodities continued to decline, with the fund significantly underperforming its benchmark, posting a negative performance of 46.41 per cent. According to Mr Henderson, the biggest negative contributor to performance was the fund's energy holdings, although their fall was less than the oil price decline.
"The smaller companies sector also did a lot of damage, and we are still significantly below our target of having half of the fund invested in small companies with a market capitalisation of below $2bn," says Mr Henderson. "My belief is that there is still going to be a huge amount of volatility as companies struggle to refinance, and they are going to be affected by what happens to the broader market."
The light at the end of the tunnel seems to lie in gold, which, driven by increased demand for physical investment and exchange-traded funds (ETFs), marched into positive territory in December. Mr Henderson has responded by significantly increasing the fund's holdings in gold mining companies, with Lihir Gold replacing BHP Billiton as the top stock in the portfolio. As of 31 December last year, 40.5 per cent of the fund's holdings were in gold and precious metals.
The outlook for base metals is more demand-dependent and Mr Henderson's prediction is that, until there is strong demand from steel consumers in both the automobile and construction industries, stocks are likely to build up and prices remain weak. The fund has, however, retained a 31.3 per cent exposure to energy holdings and 19.6 per cent in base metals, which Mr Henderson views as defensive stocks in a recession.
"The resources sector has already de-rated as much as can be expected. It has underperformed in 2008 and I cannot imagine that our fund will underperform further from here." Given that Mr Henderson does not see much more downside risk in the energy sector, his hope is that the fund will post a positive outcome in 2009 of between 10 per cent and 20 per cent.
| JP MORGAN NATURAL RESOURCES FUND | |||
|---|---|---|---|
| PRICE | 430.10p | SHARPE RATIO | negative |
| SIZE OF FUND | £786.5m | 1-YEAR PERFORMANCE | -46.41% |
| No OF HOLDINGS | 275 | 3-YEAR PERFORMANCE | -22% |
| SET UP DATE | 1 Jun 65 | 5-YEAR PERFORMANCE | 67.75% |
| MANAGER START DATE | 1 Oct 92 | TOTAL EXPENSE RATIO | 1.68% |
| TURNOVER | na | YIELD | 0% |
| VOLATILITY | 7.87 | MINIMUM INVESTMENT | £1,000 initial, £100 thereafter |
| TRACKING ERROR | 5.56 | MORE DETAILS | jpmorganassetmanagement.co.uk |
Source: Morningstar
Top 10 holdings
| Holding | Percentage |
|---|---|
| Lihir Gold | 4.08% |
| Kinross Gold Corp. | 3.78% |
| BHP Billiton | 3.42% |
| Newmont Mining Corp. | 3.13% |
| Vedanta Resources | 3.07% |
| Addax Petroleum | 2.09% |
| Franco-Nevada | 1.87% |
Sectors
| Holding | Percentage |
|---|---|
| Basic Materials | 66.30% |
| Consumer Goods | 1.80% |
| Consumer Services | 0.40% |
| Financials | 2.50% |
| Oil and Gas | 22.70% |
| Fixed Interest | 0.20% |
| Non-Classified | 2.80% |
| Cash and Equivalents | 3.50% |
